Mexico was one of the first Latin American countries to implement electronic legal requirements and, because of this, they were able to lower their tax gap significantly. They started with introducing e-invoicing and e-payment and have continued to expand with further e-requirements over the years.
In this blog post, I will give an overview of the current financial requirements for Mexico, such as eAccounting, the deferred taxes, the withholding tax and the DIOT report.
The different financial requirements in Mexico
Provide accounting data in XML format
The first requirement is providing the accounting data in an XML format to the Mexican tax authorities SAT (Servicio de Administracion Tributaria). This requirement is known as Electronic accounting or eAccounting. All the companies in Mexico have to provide the following accounting information:
- Chart of Account
- has to be provided once and updated every time an account is added, deleted or changed
- based on a financial statement version created in SAP
- Balances (beginning balance, period postings: credit/debits, end balance) of all accounts
- needs to be generated monthly
- Journal Entries (type, accounts, amount, taxes, etc.)
- only required if the government requests it (example: for an audit)
- RFC number and UUID number also need to be included in this report
Deferred taxes
The second requirement is deferred taxes which is at the same time a prerequisite for the DIOT report. Normally value-added tax on sales and purchases is reported when an invoice is issued. For deferred taxes, taxes are not recognized when an invoice is issued but when a payment is made. When a customer pays an invoice, or when you pay a vendor invoice, the tax is recognized by law to which you transfer the tax from the deferred tax account to the due tax account. To do so, you use the Deferred Tax Transfer program:
- You can run it whenever you want to transfer taxes
- Usually, the transfer from deferred tax account to operative tax account is done at month-end closing
- In Mexico, the time frame of the program refers to the payment date
Withholding tax
A third financial process in Mexico is withholding tax. Withholding tax is a tax charged at the beginning of the payment flow. Usually, the party that is subject to tax does not pay the withholding tax over the tax authorities themselves. For Mexican suppliers, withholding tax can be applied. In that case, the suppliers’ company code data should be maintained in the SAP system.
Mexico requires you to collect tax on a variety of expenditures, including:
- Income tax (ISR)
- Value-added tax (IVA)
These two withholding tax types are a category of withholding tax used to define the different sorts of withholding tax, for example, based on income tax or value-added tax (VAT). But, you can also define withholding tax codes that specify exactly what the tax rates are and any exemptions that apply.
DIOT report
The last requirement in Mexico is electronic VAT reporting through the DIOT report. The DIOT (DECLARACIÓN INFORMATIVA DE OPERACIONES CON TERCE-ROS) is a report created to give the SAT an overview of the VAT bookings distributed across transactions. The DIOT report can be compared to the VAT Summary Report, used in Europe.
The DIOT report contains the following information:
- RFC number (MX vendors)
- VAT number (foreign)
- VAT base
- Withholding tax
- Transaction type
To get all this information in the DIOT report, some of the master data in the SAP system will need to be extended with additional fields or information.
To comply with these financial requirements in Mexico, you can use the different standard solutions provided in the ECC system. S/4 Hana users will even be able to use the ACR solution for the electronic accounting and DIOT report.
How PIKON can help you
At PIKON, we have a Competence Center for Legal Requirements where our consultants regularly follow up on country-specific legal requirements. PIKON has already successfully implemented the requirements described in this blog post at multiple Mexican customers. An example is Hirschmann, where we implemented the electronic accounting and e-invoicing requirements.
If you have any questions on these financial requirements in Mexico, do not hesitate to request a web meeting or leave a comment in the comment section below. We are happy to help and will come back to you as soon as possible.
Contact us!
If you have any questions on these Mexican regulations do not hesitate to request a web meeting or leave a comment in the comments section below.
We are happy to help and will come back to you as soon as possible.
